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Note to readers

The statements presented in this book are my own opinions based on life experiences and introspection. I routinely use 1st person references such as “I recommend, I suggest, etc.” and 2nd person references such as “you should, you need, etc.” for ease of readability and writing. These, and all other statements in this book, should not be taken as personal investment advice, nor do any statements guarantee that you will achieve a certain investment performance if implemented.

Any historical data, calculations, charts, or graphs presented in this text are solely to provide a visual illustration of my opinions and do not specifically state or imply any sort of investment

recommendation in any specific security. Calculations, though intended to be accurate and representative, cannot be guaranteed as such.

Participating in the stock market is inherently risky and can result in immediate and substantial losses. Before making any investments, you should consult with a personal investment advisor to obtain advice tailored to your specific circumstances.

I solely represent myself as a publisher, not as an investment advisor or being in the business of providing investment advice. In no event shall I be liable for any results due to actions taken from statements in this book.

Like all information you will come across in life, you are encouraged to understand the viewpoints presented in this book and then decide as to how, or

if, you will use them. Never blindly follow one person’s opinions.

Stay smart,

Philip Fanara

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the author.

Part IV – Bonds, short selling, options, and other fetishes: Using contrarian behavior as insurance against irrational markets

Part V – Execution

A Special Thanks to the Misc

A Not So Average Introduction

If you are so good at investing, why write a book?

Publishing quality would skyrocket if more readers would ask this question before purchasing an investing book. This applies to any publishing – if the author is so good at what he is writing about, then why does he spend the time writing about it at all?

Most authors do not answer this question, either because they lack the integrity to be transparent with their readers, or they lack the insight to truly understand their own motivation.

If the author has the insight but not the integrity to disclose his true motivation in writing the book, how can you trust anything he later says?

Or if the author does not have the insight to understand his motivation for writing the book, how does he have sufficient insight to provide meaningful advice to the reader?

The fact is: everything we do, every action we take, benefits us in some manner.

This is a rather difficult concept for most people to handle. Some would point to the likes of famous philanthropists such as Bill Gates, who donated billions of dollars to impoverished countries. Donating billions of dollars to Africa has to be a selfless act, right?

About

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Note to readers

The statements presented in this book are my own opinions based on life experiences and introspection. I routinely use 1st person references such as “I recommend, I suggest, etc.” and 2nd person references such as “you should, you need, etc.” for ease of readability and writing. These, and all other statements in this book, should not be taken as personal investment advice, nor do any statements guarantee that you will achieve a certain investment performance if implemented.

Any historical data, calculations, charts, or graphs presented in this text are solely to provide a visual illustration of my opinions and do not specifically state or imply any sort of investment

recommendation in any specific security. Calculations, though intended to be accurate and representative, cannot be guaranteed as such.

Participating in the stock market is inherently risky and can result in immediate and substantial losses. Before making any investments, you should consult with a personal investment advisor to obtain advice tailored to your specific circumstances.

I solely represent myself as a publisher, not as an investment advisor or being in the business of providing investment advice. In no event shall I be liable for any results due to actions taken from statements in this book.

Like all information you will come across in life, you are encouraged to understand the viewpoints presented in this book and then decide as to how, or

if, you will use them. Never blindly follow one person’s opinions.

Stay smart,

Philip Fanara

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the author.

Contents

A Not So Average Introduction

Part I – There is no normal: Human nature and its relation to stock market failure

Associating false stimuli to responses

The stock market – random or not?

Those who never learn, never succeed

Part II – Stocks are not marriage material: Insightful thinking and its relation to stock market success

Skill or Luck?

Society’s focus on luck, not skill

Think yourself out of problems

Fear and greed

The core principle of becoming a billionaire

Breaking the rules

Where most people go wrong

Part III – Make your momma proud: Identifying the right stocks

Flaws behind technical and fundamental analysis

Trading ranges

The fallibility of support and resistance levels

Psychology of market crashes

Essential attributes of a strong stock

Other key attributes

Part IV – Bonds, short selling, options, and other fetishes: Using contrarian behavior as insurance against irrational markets

Bonds

Short selling

Inverse ETFs

Stock options

Identifying bearish positions

Part V – Execution

Strategy recap

Practical execution

Closing comments

A Special Thanks to the Misc

A Not So Average Introduction

If you are so good at investing, why write a book?

Publishing quality would skyrocket if more readers would ask this question before purchasing an investing book. This applies to any publishing – if the author is so good at what he is writing about, then why does he spend the time writing about it at all?

Most authors do not answer this question, either because they lack the integrity to be transparent with their readers, or they lack the insight to truly understand their own motivation.

If the author has the insight but not the integrity to disclose his true motivation in writing the book, how can you trust anything he later says?

Or if the author does not have the insight to understand his motivation for writing the book, how does he have sufficient insight to provide meaningful advice to the reader?

The fact is: everything we do, every action we take, benefits us in some manner.

This is a rather difficult concept for most people to handle. Some would point to the likes of famous philanthropists such as Bill Gates, who donated billions of dollars to impoverished countries. Donating billions of dollars to Africa has to be a selfless act, right?

False. Donations of any sort, whether it be money, time, or advice, give the donor a satisfaction that he is making a difference in the world. Oddly enough, money is the most solicited but least donated item; while advice is the least solicited but most frequently donated item. Can you guess why?

Everybody has his or her own source of pleasure. For one person it may be commanding a Fortune 500 company, for another it may be motivating a department of three A/R clerks to shave one more day off the billing cycle. Some would rather ditch work and travel the world, while others prefer to live in a small town and raise two children that will surely grow up to be a doctor and a lawyer.

Philanthropists are no different. They receive pleasure from helping others live a more comfortable life. Another (maybe less politically)

way to put it, they perform selfless acts that selfishly benefit themselves.

Please do not misinterpret my intentions; I am not disparaging philanthropists. Disparaging anyone’s source of pleasure would convey a fundamental misunderstanding of the concept I just described. I am merely providing you with the basic philosophy needed to understand concepts later discussed in this book.

So going back to our original question – “If you are so good at investing, why write a book?”

I wrote this book to overcome the same hurdle that most investors have: a lack of starting capital needed to break away from society’s confines and live comfortably off smart investment decisions. Ironically, to get rich in the stock market you need to

already be rich, or invest for years to get the wheels of compounding interest rolling along.

Imagine two different investors. One is an ignorant investor who inherited $10 million; the other is a smart middle-class investor who has saved $10 thousand. The ignorant investor will earn much more money by going all-in on Treasury bonds than the smart investor will earn through superb investment decisions.

In fact, if the ignorant investor earns 3% every year and the smart investor earns 20% every year, it would take 35 years before the smart investor began earning more money per year than the ignorant investor. Even more upsetting, it would take 47 years before he had more total dollars than the ignorant investor.

Since I have neither the privilege of already being rich nor the desire to invest for 35 years before realizing significant returns, I will gladly trade my stock market insight with thousands of readers for a head start in the investment world.

If you share the same philosophy, I urge you to find your launching pad – whether that be a high paying job, starting a successful business, or writing a book on your expertise. You will get rich much quicker in the stock market if you can begin the journey with a hundred thousand dollars versus one thousand dollars.

To thank you for supporting my launching pad, I will help you receive many times your money’s worth from this book. Specifically, my goal is for you to retire from your normal job in 4 years as a millionaire, allowing you to spend time working from

home as an insightful investor. From there you can choose to either fully retire, or continue your insightful investing and become a billionaire in less than 15 years later.

Yes, this does sound like a lofty goal, however it is very practical, as explained in detail throughout the book.

This book will provide you with a deep critical look into stock market psychology. It offers insight that is relatively unknown throughout the investment community, yet is practical enough so that you can apply the exact same methodologies if you so choose.

The reason why most people do not become rich in the market is the same reason why most people do not become rich in any area of life. They do not have

the insight to understand how the world works, then the creativity to form a niche for themselves.

Life experiences guide your future. The key to becoming successful in life is to find out how to best utilize your life experiences to fill a niche.

From birth until now, my life experiences have guided me towards acquiring skills necessary to write this book. Some skills I purposely pursued and others I did not even seek out. It is irrelevant whether you learn skills by choice or by chance. The important fact is that you take a critical look at your own skills and determine how you can use them to become successful.

I am using this book to transfer my knowledge to you. I will not keep anything to myself nor will I add unnecessary filler to artificially inflate the number of pages. The same cannot be said about most authors

out there (think of how many times you purchased a 250-page book that could have been written in 25 pages).

I will not censor my thoughts or try to play both sides of the field. I will tell you if I believe a certain investment strategy to be worthless, and give you the reason why. Being so direct will inevitably offend a few softies in some form or fashion, and I confidently predict they will punish me by writing a scathing one-star review or sending an email containing words they would never use in public. Although undesirable, I will gladly accept this as a cost of retaining my dignity as an author, knowing that I did not censor myself in order to appeal to the mainstream public.

You will reap the benefits by receiving a spectacular book that has been targeted towards a core group of

investors – those with the intelligence and self-control to act as an outsider peering in to the market, using its fluctuations and irrationality to your advantage, rather than the majority of investors who let the market control them.

Remember – those who are successful in life are not slaves to their environment, they shape their own environment.

I hope you enjoy this book and wish you exceptional success.

Part I – There is no normal: Human nature and its relation to stock market failure

An individual can be easily manipulated if he or she perceives the current situation to be a repeat of a past situation.

Associating false stimuli to responses

In the early 20th century, Ivan Pavlov, a Russian physiologist, published observations on what is now known as classical conditioning. Classical conditioning is the psychological effect of applying a cause-and-effect relationship to unrelated stimuli.

Pavlov initially conducted experiments on dogs, ringing a bell immediately before feeding them. After repeating his procedure a few times, the dogs began to salivate only when the bell was rung. The dogs began to expect food when hearing a bell because these two stimuli happened to be paired together in the past.

Humans are not above falling prey to this behavior, as much as we would like to think that we are.

One example arises from my early job as a charity bingo caller. Charity bingo? Well, outside of Indian reservations, gambling is illegal in Louisiana. Gambling for charity is not, however. The difference?

In normal gambling, all the profits go to the business owners; in charity gambling all the profits go to a designated charity… after “expenses” have been paid.

Expenses primarily include a hefty chunk of money to the bingo hall owner that could easily place him in a top income tax bracket. And of course expenses also include the bingo winnings and our salaries, as meager as they were.

So in the government’s opinion, gambling is a tax on the poor and should be kept out of society. However if there is a feel-good cause behind gambling, then, sure, we are fine with taxing the poor.

The primary patrons of this charity bingo were older, poorer women. They would walk in with the same sour scowl plastered underneath a bushel of dark moustache fuzz, pink hair rollers securely locked in place, wearing loose-fitting moo-moo dresses, puffing on a generic brand cigarette.

We would sell as many $5 bingo cards to them as they wanted to buy. The idea is the more cards you

play, the more of a chance you have to win. These women quickly learned that in order to get a leg-up on the competition, they simply had to buy more cards than the other women.

So, if the normal bingo player uses one card, then buying two cards will offer double the chance of winning. Not wanting to be left behind, other one-card players also started buying two. To keep that same advantage over the competition, the two-card players started buying three.

This vicious circle continued until all the players were playing three to four cards each. This interclass competition only hurt the bingo players (who were already playing a very low yielding game based on chance) because they were now competing against each other as well as the “house” – all while giving us more money for no additional payout.